177 Record Of Conversation By Warwick Smith

4th December, 1956

CANBERRA

US Surplus Disposals and Japanese Wheat Imports Mr Propps called at his own request to raise a point or two in connection with last Friday's discussion with Mr Jones (U.S.

Deputy Assistant Secretary of State (Economic) Far East). [1]

Mr Propps said that the Embassy had in fact recommended to the State Department that the U.S. should not seek any tied commercial purchase obligation by Japan in connection with any P.L.480 transaction on wheat that they might be negotiating. It occurred to Mr Propps however-and he was raising this point with us only in an effort to help things along and entirely without instructions- that the State Department would see it something in this light:

There were press reports that Australia was trying to get from Japan an import quota commitment for Australian wheat. Australia was asking the U.S.A. not to tie up any of the balance of Japanese soft wheat import demand apart from the quantity involved under P.L.480. However, Australia was asking the U.S. to forego an opportunity to get a commitment from Japan on imports of wheat from America not in order that Australia and U.S.A. might compete on an open footing for this wheat, but in order that Australia herself might tie up part of the market by means of an import commitment negotiated with Japan in the current negotiations.

Mr Propps thought that by discussion with us he might find some relatively simple answer.

I agreed with Mr Propps that this was a real point of practical significance so far as U.S. Administration's actions were concerned. However, from our point of view as soon as the Americans came in to the Japanese market with a P.L.480 deal they destroyed the commercial character of the market. We, I was sure, would have no complaints if the whole of the Japanese soft wheat import requirements- 1.2 million tons-were open to free commercial competition from supplying countries (but it had to be remembered that our usual qualification would apply, namely that commercial meant commercial and not subsidised competition). If, however, the Americans tied up part of the Japanese import requirement with a P.L.480 transaction that meant that we were already precluded from one-third of the market and it did not make much sense from our point of view to talk about open competition in what was left of the market. However, the point that Mr Propps had raised was one to which we would give further thought over the next few days. Mr Propps and I agreed that it would be better for him and for the Embassy here to await some reaction from Washington to their cable rather than to raise with Washington this point which Mr Propps had discussed with me.

Mr Propps also asked for clarification of our position on G.A.T.T.

in relation to Japan as distinct from m.f.n. treatment. I explained that it was our anticipation that if the Trade Agreement worked out reasonably smoothly the application of G.A.T.T. would follow fairly soon, but we thought it would be rather rash to try to tackle both problems at once.

1 See Document 176.

[AA : A1310/1, 810/1/39]